Virginia ruling on AEP provides support to citizen groups

CHARLESTON, W.Va. -- A ruling by Virginia regulators provides new support to citizen groups who argue that Appalachian Power should not be taking on larger ownership in two coal-fired power plants in West Virginia.

Cathy Kunkel, an energy expert with the West Virginia-Citizen Action Group, said Thursday the Virginia State Corporation Commission decision mirrors arguments her group and others are making before the West Virginia Public Service Commission.

"This is a very positive decision that recognizes several of the concerns that we raised in the West Virginia case, including Apco's lack of fuel diversity, the liability of the coal ash pond at Mitchell, and the risk of future climate change regulations," Kunkel said.

Kunkel discussed the issue the day after Virginia's commission issued a split ruling on American Electric Power's proposal for its Appalachian Power subsidiary to take a greater ownership role in two of its coal plants.

The Virginia SCC on Wednesday approved Apco's plan to acquire the remaining portion of its John Amos plant near St. Albans.

But the commission also rejected the company's effort to take over half of the Mitchell plant near Moundsville from a sister American Electric Power subsidiary, Ohio Power.

AEP President and CEO Nick Akins said his company was pleased with the ruling regarding the merger and the John Amos plant, but that the Mitchell portion of the decision was "disappointing."

In a prepared statement, Akins said that Virginia's denial of the Mitchell ownership transfer "is a complicating factor because there will be insufficient generation resources to serve the merged company."

"AEP intends to bring this matter to the attention of the parties and the Public Service Commission in West Virginia and may re-evaluate the merger," Akins said.

Because Appalachian operates as a regulated utility in both Virginia and West Virginia, the proposal needs approval from officials from both states.

Appalachian Power already owns most of the John Amos plant. The Mitchell facility is currently owned by AEP Ohio, also known as Ohio Power, an AEP subsidiary.

Apco says that, starting in May 2015, it will have a generating capacity shortfall of about 730 megawatts. But if Wheeling Power becomes part of Apco, that shortfall will rise to about 1,230 megawatts later that year, the company has said. Apco had hoped to take over the rest of John Amos and half of Mitchell to meet that demand.

The more than $1 billion transaction would provide Appalachian with an additional 1,667 megawatts of generation capacity, with 867 of that coming from Amos and 800 from Mitchell.

The AEP case is pending before the West Virginia Public Service Commission and is one of two cases in which the West Virginia PSC is considering proposals by power companies to shift ownership of coal-fired generation plants to West Virginia-based subsidiaries. In the other case, FirstEnergy wants to transfer ownership of its Harrison Power Station to its Monongahela Power subsidiary.

Consumer advocates and environmental groups question both proposals, which are worth more than $2 billion combined. The critics worry about the impact on customer rates, argue that the power companies ignore potential gains from better demand-side energy efficiency programs and complain that the plan locks West Virginia into a long-term electrical-generation mix that is too narrowly focused on coal.

In its 12-page ruling, the Virginia commission agreed with some of those criticisms. Commissioners cited the risks associated with a lack of diversity in Apco's generating fleet. Approving both plant acquisitions would raise the percentage of coal-fired electricity produced by the company to a projected 87 percent by 2017, the Virginia ruling said.

"Eliminating the possibility for additional fuel diversity at this time unreasonably increases customers' risks related to coal," the commission ruling said. "Those risks include, for example, the price impacts on customers, decreases in the supply of coal, and -- as discussed before -- the likelihood of increased federal regulation of carbon dioxide emissions from existing coal plants."

Rejection of the Mitchell transaction would not mean that facility would close.

AEP is seeking to transfer the other half of Mitchell to its Kentucky Power subsidiary, and is awaiting the approval of Kentucky regulators of a settlement that would allow that transaction.

If Apco does not take over the remaining half of Mitchell, that portion of the plant ownership would be transferred to AEP Generation Resources, another subsidiary that sells electricity on the open market rather then in regulated markets.